The Good Story That Came out of This

“Honey, I need to go.”

When I woke up my wife to tell her this, it was still dark outside on Sunday, September 14th 2008.

I had finally gotten at least a little sleep, after many calls and emails on Saturday had given me at least a little hope that my firm, Lehman Brothers, might make it.

A cell phone call woke me up and everything changed. I don’t remember the exact conversation, but it was something like this:

“We aren’t going to make it and we need you back in the office.”

You know the rest of the bad story, but as with many things, good lessons and stories also exist. At the end of this post, I’ll tell you some of mine.

The months before my pre-dawn call had been a total turmoil of Lehman meetings. I have many memories from these days (I was a Managing Director at Lehman), but most are best left unsaid.

One that I don’t mind sharing is about a late summer of 2008 Lehman Brothers “Show Our Strength” tour to many of its major offices. It was meant to inspire confidence. Top clients were invited to hear directly from Dick Fuld and other members of his senior finance team.

Below is a recounting of this day from one of my largest clients who was at the Boston meeting (we’ve talked about this often).

The meeting was going according to Lehman’s plan. Presentations were building confidence, or at least giving people courage to believe (you are only bankrupt when people think you are bankrupt and cease to put faith in your credit).

Most of the clients were institutional portfolio managers at large asset management firms. The questions were as generally expected and the answers were well rehearsed and delivered in an impressive manner. Everyone was playing his or her part. The people asking and answering the questions were long LEH. All wanted to believe. Well, all but one. A guy in a Hawaiian shirt.

As my client remembers, this guy was challenging some of Wall Street’s masters of the universe in both his dress and words. In a blunt manner, he simply said, “Thanks, but I don’t get it. The way I was taught to do math, your numbers and stories don’t work.”

This is the start of the good story.

Even though the Hawaiian shirt guy was likely acting in his best interest (he was probably short the stock), it was an example of the start of something that I think has been positive.

The questioning of haloed presentations.

Well-rehearsed presentations are still impressive and, by design, still create some compliant nods of approval (an example of this can be found in my past post, Fake News).

But, many people aren’t staying quiet anymore. The era of senior Wall Street professionals being placed on pedestals and individuals staying quiet when they see things that are wrong is waning. Podcasts and blogs can get more listens and reads than some major newspapers, and the individuals publishing them aren’t concerned about calling out firms or people in plain language.

Investors and professionals alike don’t care as much about fancy suits and impressive wood-paneled offices. Hard, dispassionate questions are being asked more often, and regardless of the answers, this message is being strongly voiced:

Questioning is good and transparency is valued.

As I wrote in an article for the CFA Institute titled, Transparency – Do We Protest It Too Much?, “some investment industry professionals [still] protest simple transparency rules to the detriment of both themselves and their clients.”

The “good” is that this seems to be changing. The flows of both people and dollars away from firms that aren’t more open are strong.

My final good story for the day is what happened after I woke my wife up in the middle of the night.

That Sunday was crazy. Meetings continued and rumors flew, but around midnight we finally got word. LEH was going to file for bankruptcy, on Monday, 10 years ago today.

I stayed at the office until we were told that Lehman had filed and then sent each client a personal email. I don’t recall the exact words, but it went something like this:

“I wanted you to hear this from me first. Lehman Brothers has filed for bankruptcy. I’ve been told that your assets are segregated and will not be part of the filing. I wish I could tell you more, but I don’t know. I am here though, will call you later this morning and will be available 24/7 to answer any questions.”

By daybreak, it had been confirmed that assets held in the division I worked at were indeed segregated. Happily, I was able to send my clients additional notes to tell them that their assets were not going to be frozen – the market was falling fast but my clients could move their assets, which of course wasn’t true for many of Lehman’s customers and creditors.

What happened next, I’ll never forget.

About 6 am, my phone rang. It was one of my largest clients. He said, “I thought you might be at the office. How are you?”

I went into a story about what I knew about LEH.

He stopped me and said, “You didn’t hear me. I asked, how are you.”

I said, “Well, not so great, but I’m hanging in. It’s been a long weekend.”

He then said, “I figured. It is going to be a long day for you and I just wanted to let you know that I’m here and thinking about you. I’m sure your phone will start ringing soon and that you have many calls to make. Know that I’m staying with you. Also, let me know if you want me to make any calls on your behalf. I’d be happy to tell them that I’m with you and that they should be also.”

I broke down on the phone with that client ten years ago and I still do most every time I think about it.

A number of clients encouraged me to start my own firm at this time, but I didn’t until a couple of years later. Many of my largest families, however, are still with me (the guy who provided the Hawaiian shirt story and the guy who called me at 6 am included).

I’m not saying this to boast or to suggest that I did everything correctly. I’ve made many mistakes along the way and I’m sure I’ll make more.